In March 2009, a company preformed the 2008 ADP test and distributed excess contributions. Later in 2009, it was determined that some of the data used for the testing was incorrect. The data was fixed and the ADP test was rerun resulting in additional excess contributions that needed to be distributed in order to pass the test. Unfortunately, the plan’s recordkeeper did not make the additional distributions until January 2010.

It was my understanding that because the distributions to correct the test failure were not made within 12 months following the end of the plan year, the test failure could be corrected with SCP using either a QNEC or the One-to-One method. However, the plan’s recordkeeper has come back and said that since the plan did test and make initial corrections in a timely fashion, the additional excess contributions due to the revised test data can be corrected under SCP by distributing excess amounts to participants within two years and no additional contribution is required. Are they correct?

Thanks.

PAL

Based on the SCP, I thought the refunds needs to be done and then a one to one correction needs to be allocated pro rata based on compensation. And then you would need to file Form 5330 for the late refund and late contribution.